New York Securities Fraud Lawyers Blog

Malecki Law Files Comment in Response to FINRA’s Proposed Modification to Rule 3240 Prohibiting Borrowing or Lending Arrangements Between Brokers and Their Customers

February 15, 2022 | Malecki Law Team

Yesterday, Malecki Law filed its official response to FINRA’s proposed changes to FINRA Rule 3240, in which FINRA seeks to modify the five current exceptions to the general rule that prohibits any “registered person” with a brokerage firm, from borrowing or lending to their customers. The rule applies to registered persons, which is most typically the account’s stockbroker, but applies to any licensed person with the firm. While FINRA has proposed this rule to “narrow the scope” of certain exceptions to the rule, Malecki Law filed its comment because of concerns that some of the modifications do not go far enough and still leaves room for possible abuse of the customer.

The five existing exceptions that currently permit borrowing or lending arrangements with a customer under Rule 3240 are if the customer is (1) a member of the registered person’s immediate family; (2) if the customer is a financial institution; (3) if the customer is also a registered person with the same firm; (4) if the lending arrangement is based on a personal relationship with the customer such that the arrangement would not exist had the personal relationship not existed in the first place; and (5) if the lending arrangements is based on a business relationship external to the broker-customer relationship.

Malecki Law is in favor of Rule 3240’s general prohibition against borrowing or lending to customers, because, as noted in Malecki Law’s filed comment, “there are thousands of brokers and advisors in America,” and therefore plenty “available to take over the debtor or lender’s investment account until the loan is repaid.” So while we support any proposal that narrows the rule, we believe that the inherent conflicts of interest in allowing such arrangements, even with a narrowed set of exceptions, could be entirely avoided in the first place.

Malecki Law Announces the Filing of an Expedited Group FINRA Arbitration Against Henley & Company, LLC, Claiming Henley Failed to Supervise its Recently Deceased Broker, Philip Incorvia, Who Allegedly Operated a Ponzi Scheme Out of a Henley Branch Office

January 14, 2022 | Malecki Law Team

This week, Malecki Law filed its second FINRA arbitration lawsuit against Henley & Company, LLC on behalf of a group of retirees who lost their money in an apparent Ponzi Scheme. Their arbitration alleges that they were victimized by the brokerage firm’s inadequate supervision over its registered representative, Philip Incorvia, by allowing him to run his alleged Ponzi scheme unchecked out of a Henley branch office.

It is alleged that for nearly fifteen years, Henley failed to supervise Mr. Incorvia as he sold fictitious investments in Jefferson Resources and Vanderbilt Realty out of Henley’s Shoreham, New York office. The scheme was uncovered when he died in August of 2021. Investors not only trusted Mr. Incorvia, but their trust was bolstered because Henley’s documents prominently featured a reassuring connection to Jefferson Resources, lending it a sign of legitimacy. For example, Henley featured Jefferson on much of its correspondence sent to customers, including monthly statements, tax documents, and general letterhead. Malecki Law filed its first lawsuit on behalf of a retiree in October of 2021, claiming losses of $2.5 million. Since then, more Henley customers have come forward after demanding answers and failing to receive financial restitution from Henley.

The five investors who are part of the second group lawsuit, filed this week, are claiming losses in excess of $900,000, and are all elderly retirees from New York, New Jersey, Massachusetts, and Florida. FINRA has already granted the group expedited status to the proceedings due to their senior age, which should help fast track a recovery. Some of the investors in the group were already delayed in learning about the scheme because it appears Henley failed to notify them of the fraud, which several of its corporate officers named in the lawsuit were believed to have known about for several weeks or months following Mr. Incorvia’s death. In November 2021, it is alleged that Henley further sent out a misleading letter to its customers, suggesting that they could recover their lost investment funds through an insurance policy benefitting Mr. Incorvia’s personal estate. Henley’s letter failed to mention that the investors seeking a recovery against the estate would likely not have legal standing to bring a claim, since the alleged investments were in the names of a companies, not Mr. Incorvia personally. The letter also omitted that Henley had apparently already sought to claim the proceeds of the policy for itself under contractual indemnification and contribution clauses within Henley’s own employment agreements with Mr. Incorvia.

“Crypto Creep”: Retirees and Conservative Investors Are Discovering That Their Brokerage Accounts Are Becoming Increasingly Exposed to the Speculative Risks of Cryptocurrencies like Bitcoin. Your Financial Advisor Has a Duty to Disclose These Risks

December 7, 2021 | Malecki Law Team

Few would dispute that Cryptocurrency – whether Bitcoin, Ethereum, or the thousands of other smaller coins – is a speculative and risky investment. The volatility alone in these coins was showcased this past weekend, with Bitcoin suddenly plunging over 25% from nearly $57,000 to just over $42,000 per unit. This is mere weeks after Bitcoin had dropped from its all-time high of roughly $69,000 in early November. Needless to say, investing in crypto is not for the faint of heart and certainly not the type of investment you would see in the portfolio of a risk-averse retiree. Yet it is possible that retirees and conservative investors who rely on financial advisors to manage their retirement assets are receiving exposure to Bitcoin and other cryptocurrencies without even realizing it.

Crypto is a polarizing topic, with some insisting that it is the future, others distrusting it as a Ponzi-type pump and dump, and many more who have no understanding of what it is at all. World governments have traditionally been reluctant to adopt crypto because they see it as a threat to their central banks and control over their fiat currencies, but approaches to regulation vary. China has outright banned crypto, El Salvador has fully adopted Bitcoin to allow its citizens to shop and pay taxes with, and most other countries (including the United States) are still figuring out how to regulate it.

Financial institutions have been even slower at the notion of adoption because the nature of blockchain transactions poses a threat to the “middleman” place of these institutions in brokering everyday global transactions. Jamie Dimon, the CEO of JPMorgan Chase, has been famously on record for nearly a decade, repeatedly calling Bitcoin “worthless,” “fool’s gold,” and a “fraud.” Yet now it is becoming commonplace for retailers to accept certain cryptocurrencies as payment directly from their customers, with no more hassle than it is to process a credit card or any other electronic payment.

Attorney Jenice L. Malecki to Speak this Week on FINRA Expungements and Employment Arbitrations at the American Bar Association’s Women in Litigation Conference

November 16, 2021 | Malecki Law Team

Jenice L. Malecki, Esq., founder of the New York City securities law firm Malecki Law, is scheduled to speak this Friday November 19th at the American Bar Association’s Women in Litigation Joint CLE Conference. The conference is scheduled November 17-19, 2021 at the Boston Park Plaza in Boston, Massachusetts. The conference highlights leading women litigators in a number of legal areas, with Ms. Malecki invited to speak on FINRA expungement matters, defamation lawsuits, and wrongful terminations relating to employment arbitrations litigated in FINRA’s dispute resolution forum.

For the last thirty years, Ms. Malecki has been an industry trailblazer as a leading female litigator in securities matters, having represented throughout her career a cross section of retail investors, brokerage firms, and employees within the securities industry. The breadth of Ms. Malecki’s experience and success is atypical in the legal profession, and particularly in securities litigation, because the field has been traditionally male dominated. She is an adjunct securities law professor at the New York Law School and has published scholarly works on women’s issues in the law, amongst numerous other securities-related topics. Earlier this year, Ms. Malecki authored a paper published in the Public Investors Advocate Bar Association (PIABA) Bar Journal, Vol. 28, No. 1, entitled Minorities and Women in the Securities Industry: The Disproportionate Impact of Securities Fraud Exploitation. Ms. Malecki was also a panelist at last year’s PIABA Annual Meeting and Securities Law Seminar where she spoke on the issue of Women Lawyers, Arbitrators, and Expert Witnesses.

Ms. Malecki is an ex-vice president of PIABA and sat on the advisory board for FINRA’s National Arbitration and Mediation Committee. She was recently appointed in September of this year as co-chair of the New York State Bar Association’s (NYSBA) Commercial & Federal Litigation Section’s Securities Arbitration Committee. The committee recognizes Ms. Malecki’s experience in the securities arena with the goal of promoting healthy industry relationships between litigators, administrative bodies, and the courts.

Investors Sue Wells Fargo for Failing to Supervise Ex-Broker Who Faces Up to Twenty Years in Prison for Role in $30 Million Cryptocurrency Ponzi Scheme

November 15, 2021 | Malecki Law Team

While the lack of a regulatory framework certainly makes it harder to recover fraudulent cryptocurrency losses than for traditional securities, falling victim to a cryptocurrency scam when investing through a broker or large firm regulated by FINRA or the SEC makes it easier.

This coming January, a federal court in New York’s Southern District is scheduled to sentence former Wells Fargo broker James Seijas up to twenty years in prison for his alleged role in facilitating a $30 million-plus Ponzi scheme. Meanwhile, Seijas’ former firm, Wells Fargo Advisors, has been named in a Florida civil lawsuit brought by 73 affected investors who allege that the firm failed to supervise Mr. Seijas and failed to investigate his business dealings in Q3I LP, a cryptocurrency hedge fund that Mr. Seijas partly owned. The fund was falsely marketed to investors with inflated returns from a cryptocurrency in which the investor money solicited was never even invested in. While approximately $10 million was invested, most of the remainder was allegedly spent elsewhere on lavish cars, yachts, jewelry, and real estate, including a multi-million-dollar Florida home purchased by Mr. Seijas.

As is often the case when Ponzi schemes collapse, the investor money is typically already spent. Fortunately in Ponzi cases that involve large financial firms like Wells Fargo, investors still have legal recourse to sue the employing firms, which have a duty under the securities laws to supervise the activities of their registered employees not only within the firm, but also to disclose and supervise their business activity conducted outside of and away from the firm. According to Mr. Seijas’ BrokerCheck Report, Wells Fargo had not even disclosed Seijas’ outside business activity at Q3I to FINRA, which the plaintiffs in the civil action claim would have uncovered the scheme had Wells Fargo investigated or “done any minimal compliance review.”

Securities Attorney Jenice L. Malecki Quoted in Connection with Attorney General Warning on Faith-Based Affinity Scams

November 2, 2021 | Malecki Law Team

Yesterday, a writer for The Inter-Mountain, a West Virginia daily newspaper, published a warning from its state attorney general, Patrick Morrissey, that residents should be careful “not to fall prey to faith-based scams.” The article does not discuss any specific scam but quotes a general press release from Mr. Morrissey’s office regarding “affinity frauds,” where victims of financial scams are targeted through their common bond, often a religious community. The article is notable in part because it quotes Jenice L. Malecki, a New York securities lawyer from Malecki Law, who has been featured frequently in the media and on CNBC’s American Greed, where she explained how people in these communities fall victim by letting their guard down “[e]specially in affinity situations, where people feel more comfortable for one reason or another, be it a church or an ethnic community, they tend not to look as hard as they should at what’s in front of them.”

While Mr. Morrissey’s warning is important and discusses the threat of scammers from outside the community, investors should additionally be aware that victims of affinity frauds are often victimized directly by someone prominent within the community itself, often the leader or pastor of the community. For instance, the warning focuses on scams where such a leader is impersonated by someone from outside the community, where scammers “have hacked a minister’s or faith -based charity’s online account, then emailed” its victims to ask for money. Further illustrating this, the warning states that “Scammers may claim the pastor is stuck or overseas and needs gift cards sent to get home, or they could solicit funds for a project.” The SEC, however, emphasized the threat more broadly in a 2013 publication where it warned on affinity frauds how the “fraudsters who promote affinity scams frequently are – or pretend to be – members of the group.” The SEC also noted that “many affinity scams involve ‘Ponzi’ or pyramid schemes, where new investor money used to make payments to earlier investors to give the false illusion that the investment is successful.”

So investors should be aware that fraudulent schemes can come from both within the group (i.e., community leaders themselves) as well as outside the group. Ponzi schemes are still highly prevalent, and investors should be on alert and watch their investments carefully. Malecki Law has recovered millions of dollars for investors across numerous types of frauds and Ponzi schemes, including her famous representation of over 120 victims from the Bronx, New York, in the Robert Van Zandt Ponzi scheme, as well as successful, multi-million dollar recoveries in other schemes involving the imprisoned Hector May, and the Biscayne Capital fraud that victimized Latin American investors of over $155 million. Most recently, the firm filed an action against the brokerage firm Henley & Company on behalf of an investor who was victimized by the late Ponzi schemer Phil Incorvia. The lawsuit against Henley alleges that the firm effectively allowed the scheme to flourish for the last 15 years because Henley allegedly failed to properly supervise Mr. Incorvia and the office he worked out of since 2006.

Malecki Law Files Lawsuit On Behalf of Retired Investors Against Long Island Brokerage Firm Henley & Company LLC, Claiming Henley Failed to Supervise its Broker Philip Incorvia, Who Allegedly Operated a Ponzi Scheme for Fifteen Years out of a Henley Branch Office Until he Died

October 12, 2021 | Malecki Law Team

Malecki Law filed an expedited FINRA arbitration complaint today on behalf of a retired couple from New York alleging that their brokerage firm Henley & Company LLC failed to supervise its recently deceased, registered representative Philip Incorvia and the Henley branch office he worked out of. The complaint claims losses of approximately $2.5 million and that Henley essentially allowed Mr. Incorvia’s Ponzi scheme to flourish since about the time he joined Henley in 2006. Through these alleged supervisory failures and extreme negligence, the complaint alleges that Henley effectively promoted Mr. Incorvia’s fraudulent practices, including allowing him to freely run his own business, Jefferson Resources, Inc., out of the satellite branch office of Henley’s affiliate, SEC-registered investment advisory firm, Henley & Company Wealth Management, LLC, located at 10 Beatty Road, Shoreham, New York. Mr. Incorvia operated his Ponzi scheme out of this Jefferson entity housed right inside a Henley office, soliciting investor funds away from investor accounts at Henley to be invested directly into private “alternative” (i.e., fictitious) investments with Jefferson. Mr. Incorvia’s recent passing is what caused the Ponzi scheme to unravel. A Henley executive named in the complaint has further admitted to the existence of numerous other Henley customers who are only just discovering that they have been victimized as well.

The complaint alleges that Henley knew about the existence of Jefferson being run out of its own office but failed to follow industry rules to both report and supervise the activity. According to Henley’s BrokerCheck Report published by the Financial Industry Regulatory Authority (FINRA), the defendant brokerage arm of the firm (Henley & Company LLC) apparently failed to disclose the existence of its10 Beatty Road satellite office to FINRA. However, Henley’s advisory arm (Henley & Company Wealth Management, regulated by the SEC) did disclose it as an operational branch office in a public ADV filing to the SEC. The ADV filing further disclosed Henley’s awareness of Jefferson by reporting Mr. Incorvia’s association with Jefferson as its “President.” According to BrokerCheck, both Henley firms are under common supervisory control, have the same main office address in Uniondale, New York, and are owned by the same CEO, Francis P. Gemino, with common oversight by their managing director, Michael J. Laderer. Both Gemino and Laderer are named in the lawsuit as liable control persons.

FINRA’s supervisory rules require all brokerage firms to disclose and report all outside business activities of its registered representatives, further requiring firms to audit and supervise those businesses, especially if they are small branch offices. Both FINRA and the SEC have made clear that supervision of small, satellite branch offices require the same level of supervision as a main office. The SEC, for instance, takes the position that geographically dispersed offices staffed by only a few people are more at risk of fraud because “[t]heir distance from compliance and supervisory personnel can make it easier for registered representatives [like Mr. Incorvia] to carry out and conceal violations of the securities laws.”

Has Your Broker Employed an Options Trading Strategy That Suits Your Investment Goals and Priorities?

October 5, 2021 | Malecki Law Team

It is usually a bad sign when a retiree or the typical conservative investor suffers investment losses and brings a case to us where their broker was trading options. In such instances, it at least bodes well for a customer’s legal case when the investor has limited investing knowledge yet has somehow been approved by their brokerage firm for options trading. It is a sign that the investor may have been misled by a broker who was not properly supervised by the firm, as firms have a duty to know their customers and recommend investment strategies that are suitable to each investor’s risk tolerance and objectives. Very generally, options are not considered safe for conservative investors, but there are circumstances where they could be.

Options are considered high risk because they are derivatives of an underlying stock price, which gives investors a completely separate asset class of investment to speculate in. The speculation is a bet that not only tries to predict whether the stock price will go up or down to a particular price (known as a “strike price”), but whether it will reach or exceed that level within a specified timeframe (i.e., by the option contract’s expiration date). As the time frame gets closer and closer to expiration, the value of the options contract decays and becomes worth less and less over time, until it expires worthless, which is what happens with most options contracts. Moreover, when buying a stock, you simply pay the price of the stock. When buying an option contract, you pay a premium in addition to the price of the stock (should you decide or have the ability to later exercise that option). Therefore, buying shares in a specific stock is almost always a safer strategy than buying options for that same security.

Options differ from other asset classes in that they give the buyer (or seller) the right, but not the obligation, to buy (or sell) an underlying stock at a specific price on or before a specific date. It is the premium paid on an option that gives the purchaser the right (but not obligation) to later buy or sell, no different than placing a down payment on a home that you intend to later purchase at the agreed upon price. You could walk away from the purchase later and you only lose the premium. So by granting an investor a right, rather than an obligation, to transact in a certain security, options provide investors with the opportunity to speculate on the future price movement of that security. Although options allow investors to hedge, add cash flow, and leverage returns, options are inherently risky product because they are complex products that are wholly based on price speculation. It is, therefore, highly critical that your broker discuss all applicable risks with you before having an options trading strategy deployed in your account.

Malecki Law Investigating Possible Ponzi Scheme or Misappropriation of Funds in Connection with Henley and Company LLC and its Financial Adviser Philip R. Incorvia

September 24, 2021 | Malecki Law Team

Malecki Law is currently representing clients and investigating allegations against the brokerage and investment advisory firm Henley & Company, LLC and its recently deceased financial adviser, Philip Incorvia. Public records show Mr. Incorvia openly and notoriously operated Jefferson Resources Inc. since 1992 (nearly 30 years, while being registered as a FINRA Series 7 licensed broker with Henley & Company – using Henley & Company as the website address for the company). Mr. Incorvia was employed approximately 15 years with Henley and Company, operating both out of its offices in Shoreham and Uniondale, New York. Malecki Law is looking for whistleblowers, witnesses, and other victims.

Malecki Law’s investigation relates to a possible Ponzi scheme and/or misappropriation of funds involving many investors and potentially many millions of dollars in losses. The losses occurred across a number of purported “investments,” including but not limited to Jefferson Resources Inc., Vanderbilt Realty Investors, Inc., and JRI Hedge Fund. The investments were purporting to be mutual funds, hedge funds, and index funds, but it is believed that they were fictitious. Some were “income producing” while others rolled over.

A Ponzi scheme is a fictitious investment or scam, in which the Ponzi operator typically uses investor money for personal use and non-investment related purposes. Earlier investors are typically given “returns” which consist of principal coming from newer investors. Ponzi schemes tend to collapse when there are no more new investors to tap into, which often happens during adverse market conditions. In this case, it is believed that there was no one left to continue the Ponzi scheme when Mr. Incorvia passed away in August 2012, so it collapsed.

Jenice Malecki Appointed as Co-chair of the New York State Bar Association Commercial & Federal Litigation Section’s Securities Arbitration Committee

September 22, 2021 | Malecki Law Team

Jenice L. Malecki, Esq., founder of Malecki Law in 1999, was appointed today as co-chair of the New York State Bar Association Commercial & Federal Litigation Section’s Securities Arbitration Committee. Ms. Malecki has over 30 years of experience in securities arbitration and regulation, as well as whistleblowing claims and commercial arbitration and litigation. Having also been appointed to the FINRA board advisory group called the National Arbitration and Mediation Committee, as well as having been on the board of the Public Investors Arbitration Bar Association board, Ms. Malecki is uniquely qualified to lead this committee. Ms. Malecki has represented clients around the country and the world, including clients from Europe, Asia, Israel, Hong Kong, Puerto Rico, Mexico and South America. This broad representation has given Ms. Malecki in-depth expertise in arbitrations, mediations, settlements, and hearings – both live and over Zoom – as directed in court, at FINRA and before regulatory bodies. Ms. Malecki has also worked on high profile class action cases and appeared on various media shows including but not limited to Wall Street Journal Live, ABC’s Eyewitness News and NBC’s Today Show. All of this demonstrates Ms. Malecki’s knowledge and passion for securities work.

The New York State Bar Association (NYSBA) was founded in 1876 in an effort to cultivate and develop the law. Educating the public, as well as evolving with the changes of the legal profession, are part of the mission. The NYSBA promotes and champions equal justice through state and federal legislation. With over 70,000 members, the NYSBA attempts to nurture the science of jurisprudence while also encouraging changes in the law to effectively arbitrate justice.

Within the NYSBA, a committee was created in 1988 to continue to develop effective representation as well as encourage improvements to the law in areas of commercial and federal litigation. The committee works to foster healthy relationships between various administrative bodies, litigators, and judges to stimulate and encourage research, and collaborative thought on issues that affect commercial and federal litigation. Regulating and promoting legislation that would affect commercial and federal litigation. The extensive network will assist in providing resources for legal educational programs as well as other resources that inform on topics relevant to commercial and federal litigation.